Budget 2014 = Abki Baar Reforms Raj, End of Permission-Discretion Raj?

Published: 15th June 2014 06:00 AM  |   Last Updated: 15th June 2014 02:08 PM   |  A+A-



The photographs are worth a thousand words, they tell a thousand stories. The ‘reformists’ in the Modi Sarkar must want to duck and cringe when they see the visuals. These pixels are evidence, how little has changed since the much-vaunted declaration of liberalisation, since 1991. The annual photo-ops, the pilgrimage to the durbar on Raisina Hill, the parade of obsequiousness, raw expositions of sycophancy… they are all testimonies to the triumph of status quo, the dominance of socialist dogma over promises of laissez faire.

These are the images that define the power of the state and the shackling of its economy.

The newly elected Modi Sarkar has a great opportunity to deploy its political capital to usher in reforms and complete the unfinished agenda to shift India from the ghetto of entitlements into the orbit of self-propelled prosperity. The BJP, which has always presented itself as a pro-reforms party, is now faced with an opportunity to put its money where its mouth was.

In theory, growth is fuelled by efficient channelisation of savings for production through investment. In practice, this requires efficiency in the deployment of the principal factors of output—capital, labour and technology. India’s promise, potential and prosperity are stranded in a swamp of red-tape and sloth. Budget 2014 must focus singularly on dismantling the permission-discretion raj.

To fuel growth, Budget 2014 must free policy from the mai-baap sarkar. Here are a few thoughts.

Decentralise, Decentralise,

Decentralise: Investors are required to pay obeisance both in Delhi and state capitals. In a system sans merit, clearances are duplicated. This promotes pelf and prolongs decision-making. Location of investment must dictate authority for clearance; states must decide; multi-level clearances must go. The international experience is persuasive: investment clearances are local and regulation is national.

Smart Grid for FDI: India’s FDI policy has been trapped between pride, paranoia and pelf. The focus of FDI policy should be to enable investment, employment and growth, not to protect a business. In the defence sector, imports are open 100 per cent to foreign suppliers while FDI for domestic production is capped. In a globalised world, policy can scarcely be tailored to suit archaic ideas or rentrepreneurs. Opening up FDI across sectors will help induction of technology and competitiveness. India has not lost out in any of the sectors that have been opened up. India must decide no-go areas and open up the rest.

Assure Rule of Rights, and Contracts: In the beginning, there was a word and the word was trust. Enterprise is sustained on expectation of explicit conduct and implicit trust. Investors look for predictability and comparability. India has been badly hit by a series of actions—on retrospective taxation and other fronts. India needs to pledge allegiance to rule of the law in letter and spirit.

Alt + Ctrl + Del: Codify a new ‘Operating System’ for clearances. Two decades after the dismantling of licence raj, India is ranked 132/185 in ease of doing business, trailing even Bangladesh and Bosnia. A 99 Days Commission should be empowered to shred unwanted/archaic clauses and draft a simplified flow chart that includes self-registration and self-regulation with a heavy fine regime for violators. Delete the word ‘pending’ from government usage and set deadlines for clearances.

Go Digital, Go Online: The Netherlands has merged approvals and set up online clearances systems for businesses; Colombia encourages online enrolment and registration of companies; the UAE gives online one-window clearance for start-ups. Why isn’t India, code-master for global businesses, going online? Once overlap and layers are slashed, online clearances are a must follow corollary. Going digital and online for clearances will remove scope for human intervention, deliver scale and improve speed.

Let States Design Labour Reforms: More jobs have been destroyed than saved by labour laws. Width of legalese cannot save jobs. The Centre should simply codify employee benefits— contract or otherwise, and leave it to the states to create their own grammar. Those with better laws will attract investment and create more jobs. That will be the distinguishing factor in competitive politics and economics.

Accelerate Connectivity: India needs to get into mission mode on connectivity—whether it is power, telecom, broadband, rail, road or port connectivity. The business-as-usual model has not delivered. Piecemeal approach promotes seasons of corruption. The government should create a menu of incubated projects—with all clearances in place—and invite global bids. This will enable cost competitiveness, deliver speed of execution, and a kick-start to investment.

This government has—more than any previous government—created a humongous wave of expectation. Of growth, of prosperity. Ergo, achche din. There are promising signs—outcome orientation, signals to the bureaucracy, demolishment of committee raj (this column had defined them as alibis for indecision http://bit.ly/QUSAgx) and the “6am to midnight NaMo weight loss regimen”.

The danger is in the deafening roar of hosannas, in mistaking the applause of hope and the thunderous expectation for achievement. Governments often end up believing their own propaganda. The UPA did so and was decimated. To liberate itself from this possibility, the NDA must liberate the economy. 


Shankkar Aiyar is the author of  Accidental India: A History of the Nation’s Passage through Crisis and Change

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